Why do I get "! Undefined control sequence" in bbl from very simple example?

The hint is found in named.bst, which contains near the top of the file:

% The LaTeX style has to have the following (or similar)
%     \let\@internalcite\cite
%     \def\cite{\def\citeauthoryear##1##2{##1, ##2}\@internalcite}
%     \def\shortcite{\def\citeauthoryear##1{##2}\@internalcite}
%     \def\@biblabel#1{\def\citeauthoryear##1##2{##1, ##2}[#1]\hfill}
% which makes \shortcite the macro for short citations.

So you should follow the advice:

\documentclass[letterpaper]{article}
\usepackage{filecontents}
\begin{filecontents*}{\jobname.bib}
%
@BOOK{pearl88probabilistic,
  AUTHOR = {J. Pearl},
  YEAR = {1988},
  title = {Probabilistic reasoning in intelligent systems: networks of plausible inference},
  PUBLISHER = {Morgan Kaufmann, San Mateo (Calif.)},
}
\end{filecontents*}

\makeatletter
    \let\@internalcite\cite
    \def\cite{\def\citeauthoryear##1##2{##1, ##2}\@internalcite}
    \def\shortcite{\def\citeauthoryear##1{##2}\@internalcite}
    \def\@biblabel#1{\def\citeauthoryear##1##2{##1, ##2}[#1]\hfill}
\makeatother

\begin{document}

This is a citation: \cite{pearl88probabilistic}.

\bibliographystyle{named}
\bibliography{\jobname}
\end{document}

If I don't follow the advice, I get your error. If I define the commands as suggested, I do not.

In line with @Troy's suggestion, something like this?

\documentclass[letterpaper]{article}



\usepackage{natbib}
\bibliographystyle{named}



\begin{document}

This is a citation: \citet{pearl88probabilistic}.

\bibliography{b}
\end{document}